Question

Please try to analyze the following cases and write down the appropriate recoding process.

a)

Payne Company purchased equipment in 2010 for $90,000 and estimated a $6,000 residual value at the end of the equipment's 10-year useful life. At December 31, 2016, there was $58,800 in the Accumulated Depreciation account for this equipment using the straight-line method of depreciation. On March 31, 2017, the equipment was sold for $26,000.

Please prepare the appropriate journal entries to remove the equipment from the books of Payne Company on March 31, 2017.

b)

Judson Company sold a machine for $15,000. The machine originally cost $35,000 in 2014 and $8,000 was spent on a major overhaul in 2017 (charged to Machinery account). Accumulated Depreciation on the machine to the date of disposal was $28,000.

Prepare the appropriate journal entry to record the disposition of the machine.

c)

Donahue Company sold office equipment that had a book value of $7,000 for $8,000. The office equipment originally cost $20,000 and it is estimated that it would cost $25,000 to replace the office equipment.

Prepare the appropriate journal entry to record the disposition of the office equipment.

Answer 1

1)

	Debit	Credit
Depreciation Expense ($8,400 × 1/4 = $2,100)	2,100
Accumulated Depreciation - Equipment		2,100
Cash	24,000
Loss on Disposal	5,100
Accumulated Depreciation - Equipment (58,800 + 2,100)	60,900
Equipment		90,000

2)

	Debit	Credit
Cash	15,000
Accumulated Depreciation - Machine	28,000
Machine		43,000

3)

	Debit	Credit
Cash	8,000
Accumulated Depreciation - Equipment	14,000
Office Equipment		20,000
Gain on disposal		2,000